FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK

3 Months Ended

Mar. 31, 2024

Debt Disclosure [Abstract]

FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK

NOTE 9: FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK

Revolving Credit Facilities

RHM March 2024 Credit Agreement

On March 22, 2024, RHM entered into a second amended and restated credit agreement with a syndicate of banks (the “RHM March 2024 Credit Agreement”) amending and restating the unsecured revolving line of credit entered into in October 2019 and as thereafter amended (refer to Note 13 - Financing Activities and Off-Balance Sheet Risk, of the 2023 Form 10-K for more information). The RHM March 2024 Credit Agreement has an initial commitment of $750 million with a maturity date of March 22, 2027. Under circumstances described in the RHM March 2024 Credit Agreement, the aggregate commitments may be increased by up to $187.5 million, for a total commitment of up to $937.5 million. Borrowings under the RHM March 2024 Credit Agreement will bear interest at a rate per annum equal to the Alternate Base Rate or Adjusted Term SOFR (“Secured Overnight Financing Rate”) plus an applicable margin. For purposes of the RHM Credit Agreement, the Alternative Base Rate is the greatest of (i) the prime rate then in effect, (ii) the Federal Reserve Bank of New York rate then in effect plus 0.5% and (iii) the Adjusted Term SOFR for a one month interest period plus 1.0%. The Adjusted Term SOFR Rate is equal to the Term SOFR, published by the Term SOFR Administrator, plus the Term SOFR Adjustment. The Term SOFR Adjustment is 0.10%. If the Adjusted Term SOFR Rate is less than the floor of 0%, such rate shall be deemed to be equal to the floor. RHM is obligated to pay a commitment fee calculated at a per annum rate equal to 0.25% on any unused amount of the RHM March 2024 Credit Agreement.

RHS March 2024 Credit Agreement

On March 22, 2024, RHS, our wholly-owned subsidiary, entered into the Third Amended and Restated Credit Agreement (the “RHS March 2024 Credit Agreement”) among RHS, as borrower, the lenders party thereto, and JPMorgan Chase Bank, N.A., as administrative agent, amending and restating the $2.175 billion 364-day senior secured revolving credit facility entered into in March 2023 (refer to Note 13 - Financing Activities and Off-Balance Sheet Risk, of the 2023 Form 10-K for more information).

The RHS March 2024 Credit Agreement provides for a 364-day senior secured revolving credit facility with a total commitment of $2.25 billion. Under circumstances described in the RHS March 2024 Credit Agreement, the aggregate commitments may be increased by up to $1.125 billion, for a total commitment of $3.375 billion. Borrowings under the credit facility must be specified to be Tranche A, Tranche B, Tranche C or a combination thereof. Tranche A loans are secured by users’ securities purchased on margin and are used primarily to finance margin loans. Tranche B loans are secured by the right to the return from National Securities Clearing Corporation (“NSCC”) of NSCC margin deposits and cash and property in a designated collateral account and used for the purpose of satisfying NSCC deposit requirements. Tranche C loans are secured by the right to the return of eligible funds from any reserve account of the borrower and cash and property in a designated collateral account and used for the purpose of satisfying reserve requirements under Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Borrowings under the RHS March 2024 Credit Agreement will bear interest at a rate per annum equal to the greatest of (i) Daily Simple SOFR plus 0.10% (as defined in the RHS March 2024 Credit Agreement), (ii) the Federal Funds Effective Rate (as defined in the RHS March 2024 Credit Agreement)

and (iii) the Overnight Bank Funding Rate (as defined in the RHS March 2024 Credit Agreement), in each case, as of the day the loan is initiated, plus an applicable margin rate. The applicable margin rate is 1.25% for Tranche A loans and 2.50% for Tranche B and Tranche C loans. Undrawn commitments will accrue commitment fees at a rate per annum equal to 0.50%.

The RHS March 2024 Credit Agreement requires RHS to maintain a minimum consolidated tangible net worth and a minimum excess net capital, and subjects RHS to a specified limit on minimum net capital to aggregate debit items. In addition, the RHS March 2024 Credit Agreement contains certain customary affirmative and negative covenants, including limitations with respect to debt, liens, fundamental changes, asset sales, restricted payments, investments and transactions with affiliates, subject to certain exceptions. Amounts due under the RHS March 2024 Credit Agreement may be accelerated upon an “event of default,” as defined in the RHS March 2024 Credit Agreement, such as failure to pay amounts owed thereunder when due, breach of a covenant, material inaccuracy of a representation, or occurrence of bankruptcy or insolvency, subject in some cases to cure periods.

As of December 31, 2023 and March 31, 2024, there were no borrowings outstanding and we were in compliance with all covenants, as applicable, under our revolving credit facilities.

Credit Card Funding Trust

Under terms of the Coastal Community Bank (“Coastal Bank”) Program Agreement (discussed below), Robinhood Credit has the ability to purchase credit card receivables originated and held for a period of time by Coastal Bank. Robinhood Credit continues to earn interest from customers and uses these purchased credit card receivables as collateral under a trust structure to access debt financing in the ordinary course of business. To help facilitate these transactions, we created a VIE known as the Credit Card Funding Trust (the “Trust”).

We are the primary beneficiary of the Trust as, through our role as the servicer and administrator, we have the power to direct the activities that most significantly affect the Trust's economic performance and, due to owning all the equity interest in the Trust, have the right to receive benefits or the obligation to absorb losses. As such, we consolidate the Trust in the condensed consolidated financial statements. Substantially all of the Trust’s assets and liabilities are the purchased credit card receivables, included in receivables from users, net, and the outstanding borrowing, included in other current liabilities, on the unaudited condensed consolidated balance sheets.

Our exposure to losses in the Trust is limited to the carrying value of net assets held by the Trust, including expected credit losses related to the purchased credit card receivables (Refer to Note 4 - Allowance for Credit Losses). For the Trust, the creditors have no recourse to our general credit and the liabilities of the Trust can only be settled by the Trust’s assets. Additionally, the assets of the Trust can only be used to settle obligations of the Trust.

The credit card receivables of the Trust have risks and characteristics similar to other off-balance sheet credit card receivables owned by Coastal Bank and were underwritten to the same standard. Accordingly, the performance of these assets is expected to be similar to other comparable credit card receivables.

As of March 31, 2024, the Trust had one arrangement in place to borrow up to $100 million. Borrowings under this arrangement bear interest at an annual rate of SOFR plus 3%. During the quarter ended March 31, 2024, we purchased $31 million of credit card receivables and the outstanding balance of borrowing principal and interest was $17 million. As of March 31, 2024, the carrying value of purchased credit card receivables, net of provision for credit losses, was $19 million. There were no purchases of credit card receivables or borrowings under this arrangement prior to the quarter ended March 31, 2024.

For the quarter ended March 31, 2024, the related interest revenue and interest expense of the Trust were immaterial.

Off-Balance Sheet Risk

Coastal Bank Program Agreement

Under a program agreement between us and Coastal Bank (the “Program Agreement”) most recently amended in November 2023, Coastal Bank may fund up to $300 million of credit card receivables. Robinhood Credit pays Coastal Bank interest based on the average balance of advances during the month at the federal funds rate plus a margin of 3.75% on the first $150 million and 3.00% on such amounts in excess of $150 million.

The credit card receivables and the funding from Coastal Bank are off-balance sheet, considering Coastal Bank is the legal lender and originator, the party to which the customer has a creditor-borrower relationship, and the legal owner of the receivables. As of March 31, 2024, the off-balance sheet credit card receivables funded under the Program Agreement was $177 million.

Transaction Settlement

In the normal course of business, we engage in activities involving settlement and financing of securities transactions. User securities transactions are recorded on a settlement date basis, which is currently generally two business days after the trade date for equities and one business day after the trade date for options. Effective May 2024, settlement date will be one business day after the trade date for both equities and options. These activities may expose us to off-balance sheet risk in the event that the other party to the transaction is unable to fulfill its contractual obligations. In such events, we may be required to purchase financial instruments at prevailing market prices in order to fulfill our obligations.